The Indian economy is expected to grow by 6.7% in 2012-13, a top advisory panel to the Prime Minister said, and called for accelerating vital economic reforms including raising diesel prices for faster growth.
The Economic Advisory Council to the Prime Minister, headed by former RBI governor C Rangarajan, said the three vital macroeconomic challenges facing the economy were taming stubborn inflation, reining the large fiscal deficit and tackling the widening current account deficit. “Overall for the economy, the council assesses that an average growth of 6.7% in 2012-13 can be realistically expected. While agriculture growth rate will be lower than the last year, there can be a distinct improvement in the manufacturing sector,” Rangarajan said. The panel’s growth estimate is higher than those of economists and research agencies which have estimated it to be below 6% in the current fiscal due to the impact of the deficient monsoon rains, sluggish industrial growth and lack of progress in policy implementation.
The Rangarajan panel expects that inflation, based on the wholesale price index, should be contained in the range of 6.5 to 7% but cautioned that food prices will continue to remain under pressure this year due to the impact of the poor monsoon. Inflation eased to 6.87% in July from 7.3% in June but has remained above the central bank’s comfort level and has acted as an obstacle for interest rates to head lower. The RBI has consistently flagged inflationary pressures in the economy and has urged the government to take measures to improve supplies. The panel said the expanding fiscal balance continues to be a major area of policy concern. “The large fiscal imbalance is an important factor contributing to the weakened investment climate in the country, as also the negative perception of foreign investors,” Rangarajan, a close of aide of Prime Minister Manmohan Singh, said.
“The containment of the fiscal imbalance at the Centre is largely dependent on productively managing the subsidy bill, especially that on refined petroleum products,” the report said. The panel detailed several measures which are needed for faster growth. It called for integrated decisionmaking on high impact infrastructure projects besides permitting 49% foreign direct investment in the multi-brand retail sector and aviation.“Given the huge subsidy burden for the current financial year, priority consideration may be given to a suitable increase in the price of diesel in one or more steps and a cap on the level of consumption of subsidized domestic LPG close to what is being currently consumed by poorer households, which is 4 cylinders,” the panel said.